Revisiting the Corporate Social and Financial Performance Link: A Contingency Approach

• Published date: 01 September 2017
• Author: Eleanor O'Higgins,Thibault Thevissen
• DOI: http://doi.org/10.1111/basr.12119
• Date: 01 September 2017

Revisiting the Corporate Social

and Financial Performance

Link: A Contingency Approach

ELEANOR O’HIGGINS AND THIBAULT THEVISSEN

ABSTRACT

This study draws on and extends contingency theory, in

relation to stakeholder theory to understand the corpo-

rate social performance (CSP) and financial performance

(CFP) link, by evaluating under what circumstances CSP

influences CFP. Contingencies include stakeholder config-

urations/salience and crisis conditions. Using differenti-

ated measures of CSP, this study examined financial

effects of various specific stakeholder facing activities pre-

and post-crisis in the food/beverage and pharmaceutical

industries, and in firms selling search versus experience

goods. The results indicate that pre-crisis CSP is related

to post-crisis financial effects, but the relationships are

dependent on the interactions among the contingencies

studied, so investments in certain social areas improve

CFP, whereas others may hurt it. This confirms that a

finer grained approach should be taken to the examina-

tion of CSP and CFP. On a practical basis, it shows that

Eleanor O’Higgins is Adjunct Associate Professor at Smurfit Business School, University Col-

lege Dublin, Co. Dublin, Ireland. She is also an Associate at the London School of Economics

and Political Science, London, UK. E-mail: Eleanor.Ohiggins@ucd.ie. Thibault Thevissen is an

Associate with Francisco Partners, based at the firm’s London office. E-mail: t.thevissen@

alumni.lse.ac.uk.

V

C2017 W. Michael Hoffman Center for Business Ethics at Bentley University. Published by

Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford OX4 2DQ, UK.

Business and Society Review 122:3 327–358

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deep stakeholder knowledge and attention to complemen-

tary factors to CSP, such as advertising, must be under-

stood, so CSP activities are of benefit to the firm.

INTRODUCTION

Many proponents of corporate social responsibility (CSR)

claim competitive advantage and economic benefits from

CSR activities. Nevertheless, evidence of any positive rela-

tionship between CSR and corporate financial performance (CFP) is

far from conclusive (Godfrey and Hatch 2007; Margolis and Walsh

2003; Margolis et al. 2009; Orlitzky 2011; Orlitzky et al. 2003;

Schreck et al. 2013). However, most research has not taken

account of contingencies, such as strategic imperatives relating to

salient stakeholders in particular industries, or external economic

conditions. Therefore, our study aims to investigate the strategic

value of prior CSR patterns in various industry contexts and in the

adverse market environment of the global financial crisis which

began in 2008.

First, we show in the next section how we ground our study in

contingency theory as integrated with strategic CSR and stake-

holder theory, whereby economic crisis is an important contin-

gency condition. In the following sections, we discuss some

methodological issues in research which studies possible causal

linkages between corporate social performance (CSP) and financial

outcomes for firms and then develop our hypotheses emerging

from our theoretical base. We then present our study, designed to

understand the contingencies and stakeholder influences in our

hypotheses, taking account of possible complex interactions among

CSR and other variables that influence financial results. The

industry contexts entailed different stakeholder configurations and

types of goods. We also studied CSP from the perspective of specific

dimensions rather than as a global measure. Another layer of the

study intertwined with the strategic imperatives of different indus-

tries, examines whether firms with a strong pre-crisis commitment

to various facets of CSR reported better accounting performance

after the onset of the financial crisis of 2008. The Discussion

328 BUSINESS AND SOCIETY REVIEW

section covers the conceptual, research, and practical implications

of the study, as well as its limitations.

FINANCIAL PERFORMANCE CONTINGENCIES,

STRATEGIC CSR AND STAKEHOLDERS

Disagreement on the purposes and effects of CSR range from the

dismissal of CSR as a way of diverting resources from the profit

purpose of business (Friedman 1970; Karnani 2011) to the societal

approach to CSR which hold firms as morally obliged to serve the

public interest regardless of financial performance. In between are

views that advocate CSR activities as enlightened self-interest for

the firm, and others that integrate social and business interests in

a dynamic way (Devinney 2009; O’Higgins 2010; Schreck et al.

2013; Van Marrewijk 2003).

Contingency Theory

Some researchers have moved beyond seeking a general straight-

forward answer to the business case question of whether “CSR

pays,” or companies “do well by doing good.” Instead, scholars are

turning to questions of understanding which types of CSR produce

superior financial returns, and in which circumstances this might

occur (Husted et al. 2015). Conversely, when should firms refrain

from certain types of CSR to safeguard their CFP? This attempt at

understanding invokes questions of moderating and mediating

variables and situational contingencies in the responsibility-

performance relationship, recognizing that an appreciation of the

complexity of the relationship between CSP and CFP is necessary

beyond a simplistic direct responsibility-performance link (Carroll

and Shabana 2011). Further, the question has been rephrased, to

account for possible endogeneity, whereby account is taken of

internal influences, acknowledging managers do not make random

isolated decisions; certain types of strategic decisions may be

related to plans to engage in CSR, which may, in tandem with, but

not on their own, boost CFP (Garcia-Castro et al. 2010; Weber and

Gladstone 2014). An example is R&D intensity which has been

found to be positively related to CSP and CFP (McWilliams and

Siegel 2000).

329O’HIGGINS AND THEVISSEN